We Don’t Need No Education

James Altucher posted an interesting article and video making the case against sending your children to university. I commend him for questioning the credo that everyone should go to university, regardless of interest or aptitude. But I am not totally convinced by his analysis.

Altucher gives short shrift to the fact that many good jobs require a university degree, even if it might be possible to acquire equivalent skills and knowledge other ways. (However, credentialism is consistent with his description of university education as “a self-perpetuating Ponzi scheme.”)

His core argument is that investing money in bonds could provide a better financial return than investing it in university:

The differential in lifetime income between a college graduate and a non-college graduate over a 45 year career is approximately $800,000. If I put that $200,000 that I would’ve spent per child to cover tuition costs, living expenses, books, etc. into bonds yielding just 3% and let it compound for 49 years (adding back in the 4 years of college), I get $851,000.

An obvious retort is that there are also non-financial reasons to attend university. But my quibble with Altucher’s financial argument is the assumption that a four-year degree costs $200,000. That’s $50,000 per year.

A single university student can realistically live on half that amount or less, which leaves $25,000 for tuition, books, etc. Tuition fees are too high, but they are nowhere near that high at Canadian universities. I do not think they are that high at most American colleges, especially after deducting grants and scholarships from the sticker price.

Furthermore, why assume that students must necessarily rent their own accommodation, buy their own groceries, etc.? People from rural areas, or who cannot get along with their parents, may need to leave home.

However, living at home is a completely viable option for many if not most prospective undergraduates. For example, Altucher’s kids could presumably enrol at any number of excellent colleges in New York City. Leaving for graduate school after that entails fewer years and greater opportunities for scholarship funding.

It seems to me that Altucher makes an excellent case against sending your children away to super-expensive private colleges. However, there are far more affordable ways to get a financially, intellectually and socially rewarding university education.

3 comments

  • Erin, your argument in your 6th paragraph ignores the opportunity cost. That student scrounging by on $25,000 per year would presumably, if not going to university and while not making investment decisions, be able to work and earn a living… at least another $25,000.

  • Good point, but Altucher proposes travelling, volunteering and home schooling as alternatives to university. Those activities would not generate income either.

    Also, with an official youth unemployment rate of 15%, one cannot assume that new entrants to the labour force from high school would obtain paid employment. The real opportunity cost may be unemployment, which could make university a more attractive option.

  • Ditto that: post-secondary education functions as signalling mechanism to employers that prospective job applicants have the ability to submit to a set of more or less arbitrary bureaucratic practices and complete a set of more or less alienated work tasks. That is we can think of the university as a big hopper which sorts the wheat from the chaff. I can’t see HRM departments falling over themselves to hire self-directed fiercely independent employees any time soon.

    The point seems to be that any child that comes from a family that can and will finance 800,000$ in post-sec fees needs to ask their parents if it is the best investment. For the rest of us (95% I should think) university financing just does not look like that. If you finance your education with student loans you would need 3 points above the interest rate. Not to mention governments do not have a loans in lieu of post secondary education program.

    So the article should really be called “if you are rich, are education costs really the best investment vehicle.” Even then it will still be a silly commentary. Private school education is not just about education it is about the development of a peer network and that network is one of those intangibles functioning as a kind of job search insurance program.

Leave a Reply

Your email address will not be published.